Dominican Soccer Doesn’t Dominate

This post was written by SBS member Hannah Sawyer. Hannah is interning this summer in the Dominican Republic. She boxes there, as she did last summer in Russia.  Hannah was kind enough to share some first-hand research from her time abroad.

Given its position as a Latin American country, some people are surprised that the Dominican Republic does not have a strong soccer program. Of course, the adequately informed sports connoisseur will associate the DR with baseball, but you would still expect futbol to have a significant foothold in this Caribbean nation. Or, from the gringo perspective, if a country has the gall to call the sport “football”, it must like it a lot.

The fact is, soccer is just not prioritized in the Dominican. Kids might mess around with it for a little bit, but by the teenage years most move on to other sports. As trainer and sports journalist Jorge Allen Bauger says in Forbes Dominican Republic, after “13 or 14 years young people search for other alternatives.” It’s hard to pinpoint a reason. The sport requires the barest minimum in equipment, and is therefore quite inexpensive compared to baseball, gymnastics, tennis, and especially basketball (where you now not only need a hoop, a hard surface, and a ball, but also an iPhone with a Vine app to prove that those dunks actually did happen). This financial difference is particularly poignant in a place where some 35% live below the national poverty line. True, the country has a population of 10 million, generating a small talent pool that could explain its lack of international competitiveness, but that doesn’t explain the low domestic participation.

Participation, of course, is different than interest. Indeed, people do like soccer here. The World Cup was predictably popular, kids idolize the usual international superstars, and the adults are well informed of the happenings of their favorite premier league teams. Dominicans take soccer seriously but just don’t play it. I suppose the comparison could be made to women and (real) football… American women do not compete on football teams, but the NFL’s fanbase is 45% female, according to Bloomberg Businessweek.

Back to the population explanation… the same could be said regarding baseball, but this small country is renowned throughout the world for its talent. The Blue Jays just pulled six guys from Santo Domingo to the minor leagues (compare that figure to the ten Dominicans playing collegiate or professional soccer in the states). Eighty-nine Dominicans started last year’s Opening Day, composing over 10% of the day’s roster. Since 1995, the country has led the Major Leagues with providing the most foreign-born players every year.

Yet perhaps the Caribbean winds are changing. MLB COO and Cornell alum Rob Manfred pointed out that there is hesitation regarding the baseball draft. In a Skype session with the SBS on April 30th, Manfred elaborated that the number of players from neighboring Puerto Rico dramatically decreased after the commonwealth entered the draft. The DR’s “local resistance”, he believed, must also be attributed to various socioeconomic factors that lead to more sports being available. At the moment, rugby, tennis, and boxing are filling those spheres, but it is possible that the Dominican Republic will discover a renewed passion for futbol. Until then, we’ll just say gracias for the Cano’s, Ramirez’s, and Ortiz’s of America’s National Pastime.

The Magic Touch: Chinese Soccer Club Going Public?

June 5th, 2014 was a landmark day for Chinese soccer. Jack Ma, the founder of China's largest e-commerce business, Alibaba Group, bought a 50% stake in Guangzhou Evergrande Soccer Club. Ma purchased the top Chinese club for 1.2 billion yuan ($192 million), and aimed to lead the club to new heights. Meanwhile, Jack Ma and Jiayin Xu, the chairman of Evergrande Real Estate Group, announced together that they would take the club public to raise capital by 40% and seek another 20 investors, each holding 2% share .

A Chinese soccer club preparing to go public? It's hard to imagine, given of the depressing state of Chinese soccer at the beginning of 21th century. Guangzhou Evergrande, however, has ascended with a stunning pace, winning all three domestic titles since 2011 and becoming the first Chinese club to take home the Asian club championship this past season.  For Guangzhou Evergrande, floating on the stock market now maybe seem plausible and tangible. Although this is perhaps the first time that a Chinese soccer club prepares to go public, in Europe, it is far less rare. Before making the final decision, Guangzhou Evergrande could learn a lot from the stories of other clubs: both the benefits, and the risks.

Jack Ma (right) and Jiayin Xu (left)

The first soccer club to float on the stock market was Tottenham Hotspur in 1983. In 1982, Irving Scholar, a property tycoon purchased the club. However, he found that the club was operated extremely inefficiently, with more than one million pounds debt left by his predecessor. Soon he figured out that there was only one way to solve this pressing problem. He established a holding company, with the soccer club as a subsidiary, and then floated the holding company on the London Stock Exchange (LSE). The initial public offering raised £3.3 million, which helped the club successfully tackle the debt problem.

Following Tottenham’s successful experiment in raising money through such a new way, (along with the rapid commercialization of the soccer industry) an increasing number of soccer clubs started to go public. By 2000, there were 22 English clubs listed on the London Stock Exchange, the Off-Exchange (OFEX), and the Alternative Investment Market. These offerings raised a total of £167 million , most of which was used to strengthen squads, renovate stadiums, improve liquidity to existing shareholders, and develop commercial operations.

Nevertheless, enthusiasm for investing in soccer clubs faded shortly. After the temporary success, most clubs delisted due to enormous fall of share prices. For instance, Sunderland soccer club originally went public in 1996, with an initial price of 585 pence. Astonishingly, when the club delisted in 2004, its share price had substantially plummeted to 31.4 pence, an epitome of the failure of soccer clubs to float on the stock market.

When it comes to the reasons why soccer clubs could hardly sustain a long term success on the stock market, we need to focus on the nature of soccer clubs: unpredictability.

First and foremost, in soccer industry, the performance of a club fluctuates greatly through a season and always cannot meet expectations from fans and investors. Therefore in many cases, the return is not proportional to the investment, and it is almost impossible for investors to guarantee the return of investing on soccer clubs.

For example, the let's discuss London-based club Queens Park Rangers (QPR). During the 2012-13 Premier League campaign, QPR spent more than £41 million on transfer fees, landing more than ten high-profile players, and saw their wage bill increase by almost £17 million to £68 million. However, rather than obtaining a substantial income based on its huge investment, at the end of the season, the club announced it made a loss of over £65 million and did not escape from relegation. Companies in non-soccer fields such as manufacturing enterprises, investors can precisely calculate the rate of return, gaining sufficient information to decide whether to invest it with little risk.

Secondly, even if a large amount of investment could improve the performance of a soccer club in a season, it is unlikely to ensure that the soccer club could sustain good form for a decade. It is possible that a franchise which was a favorite to the championship last year has to fight to avoid relegation this season. From investors’ perspective, stable and sustainable performance is preferred.

Additionally, some investors of a club’s stock are die-hard fans, who are eager to support the club. A club may find it difficult to attract investors who are not its supporters. Thus, the stock market of soccer clubs is a thin market, with few bid and ask offers, leaving more volatile stock prices.

So if Guangzhou Evergrande is steadfast in its belief to go public, it definitely needs to tackle these issues with its professional management team. If it is to reduce unpredictability of its stock price, it must develop steadily, and to make the investment-return ratio more measurable. Guangzhou Evergrande needs to emulate Manchester United, not only a survivor, but a victor in the cruel stock market.

With a strong base of fans around the globe, the most outstanding strategy Manchester United has been applying is business diversification. Man U significantly expanded its business fields, such as derivative products and new media, in a global context and therefore diversified its commercial operations. Thus even if the club cannot radically get rid of the unpredictability on the pitch, the performance off the pitch has become a relatively larger fragment of the overall operation. With many other stable and measurable channels beefing up the development in a long term, the Red Devils have diversified risk leading to better risk management.

If Guangzhou Evergrande can eventually go public and survive on the stock market in the future, it will start a new chapter in Chinese soccer industry. It is quite possible to obtain huge financial investment and develop to a better global. More critically, after converting to a joint stock company as a requirement to float on the stock market, the club will be pushed to enhance its management and make it more professional. That could positively influence all other Chinese clubs to pursue professionalism in managing sports, a key to reignite the country’s soccer hope.

The Magic Touch: Premier League Broadcasting Revenues

An absorbing Premier League season ended this month, with Manchester City lifting the trophy after an undramatic win over Newcastle United. No miracle came for Liverpool, as millions of fans of Reds were left dissapointed. However, they should be delighted to see that in the table of broadcasting payments to clubs this season, Liverpool rank the first, gaining extraordinary £97.5m, even greater than that of Manchester City, which will substantially help them land several quality players this summer for their next season's campaign.

In contrast, at the end of last season, they just obtained £54.8m from braodcasting revenues. This significant surge does not solely happen to top rankers. Surprisingly, even Cardiff, the bottom club this season, earn more TV cash than champions Man Utd did in 2013. Why there is a dramatic increase in broadcasting revenue this season? And how is the TV income split and calculated? We’ll look for these answers soon.

First of all, revenue streams for a professional soccer club fall under three major headings: matchday income, commercial receipts, and broadcasting rights. The money a soccer club takes in on match day is the traditional source of revenue, consisting of money paid before the season by season ticket holders, ticket money from home and away fans, and hospitality packages. The commercial revenue mainly falls into three streams: sponsorship, merchandising, and some ancillary services. Compared to these two streams, broadcasting earnings have become increasingly critical to each club, especially for clubs at bottom of the table. The reason why this part has been also vital now is that Premier League signed new blockbuster contracts to sell broadcasting rights, which have brought unprecedented financial reward for clubs.

In June last year, Premier League owners announced new £3.018bn deal for domestic live rights with Sky and BT for the three seasons from 2013-14, with Sky paying £2.28 billion and BT paying £748 million. Meanwhile, Match of the Day highlights was bought by BBC for £178m. It is estimated that combined with overseas contracts, Premier League, the richest league across the globe, is about to get £5bn broadcasting fee altogether for the next three seasons, an increase from £1.773bn for the previous three-year deal. According to PREMIERLEAGUE.COM , all 20 Premier League clubs were paid around £1.56bn from broadcasting revenue this season, a 60 percent increment compared to the £972million of television revenue the previous season. So how is this large "pie" divided?

In general, £1.56bn income was firstly divided into overseas TV income, domestic TV income and central commercial revenue. As stated by official statistics, after this season, each club equally gained £26.3m for overseas TV income, with a total of £525.9m altogether, and each also equally earned £4.27m for central commercial revenue. Dividing the domestic TV income is a little bit more complicated than overseas one and central commercial earning.

In terms of this model, it takes into consideration three factors. 50% of the sum is shared equally by each club, 25%, the merit payment, is based on finishing position in the league, with £1.2m paid for every place a club finishes in the league, and the remaining 25%, the facility fee, is derived from the numbers of domestic live TV appearance, with £750 thousand paid for every appearance. For example, Manchester City, the champion of this season, got approximately £24m merit payment, as £1.2m for each place times 20 teams. Liverpool were televised 28 times in 2013-14, so they obtained £21m facility fee.

In sum, the Premier League is pursuing a more competitive manner to distribute the broadcasting income. We can tell this trend by the calculation that Liverpool’s broadcasting revenue is 1.57 times more than bottom earners Cardiff, a ratio which is the smallest in all Europe's top leagues. As a result, the gap between each club in the league, which has been funded much more evenly than before, has been much closer, with the Premier League becoming more and more exciting.

The Magic Touch: Contract Controversy in Chinese Soccer

Three sides of this story (Guangzhou Evergrande club, Liu Jian and Qingdao Jonoon club)

During the past several months, a soccer player’s transfer case has been in the spotlight of Chinese soccer circles. This case involves three contracts, which unveil some loopholes of the Chinese soccer league.

The story began on January 3rd, 2014. On the morning of that day, Guangzhou Evergrande soccer club announced on its website that Liu Jian from Qingdao Jonoon soccer club had signed with Guangzhou Evergrande.

However, that night, Qingdao Jonoon stated that Liu Jian’s contract with the club wouldn’t end until 2017, thus, the club did not approve his transfer to Guangzhou Evergrande. As a result, the duration of the contract became an important issue.

All of a sudden, three contracts between Qingdao Jonoon and Liu Jian surfaced, and Liu Jian released details of two of them on his Weibo (the most popular social network similar to Twitter in China).



Guangzhou Evergrande announced the success of Liu Jian’s transfer

The first contract ended on Dec 31st, 2013. The second one expired on Jan 1st, 2014, which meant that Liu Jian would become a free player on that date if no clubs immediately signed him, which made it legal for him to join Guangzhou Evergrande.

Nevertheless, the third contract posted by Qingdao Jonoon shows that Liu Jian will still belong to Qingdao Jonoon until 2017. Therefore, Liu Jian couldn’t be transferred to another other club without permission from Qingdao Jonoon. Another astonishing aspect of the three contracts is that, the annual salaries increase so rapidly, with 800,000 RMB, 2,600,000 RMB and 3,500,000 RMB, respectively.

There is no doubt that one employee just has one official contract with his or her company during a period, so why did Liu Jian sign so many contracts with his club? While this case might seem unbelievable to people who are not familiar with Chinese soccer, this is in fact a common phenomenon in China.

According to a Chinese soccer commentator, there have been 46 similar cases of these multiple contract situations such as Liu Jian’s. Ten years ago, it was found that the salary of the so-called official contract of Shen Si, a former Chinese national soccer team member, was 2,000,000 lower than what his club actually offered. In 2009, several players of Tianjin soccer club collectively terminated training and left the club because of fabricated contracts.

In fact, in order to avoid paying a tax, many soccer clubs around the world sign more than one contract with players. However, Chinese clubs have a different reason for signing two or more contracts with players. The reasoning has to do with several policies that have been enacted by the Chinese soccer association that limits players’ salary and transfer fee. The latest policy even set an upper bound of one million RMB on a player’s annual wage.

All of these policies serve as responses to the strong public outcry that occured approximately a decade ago. Many people argued that soccer players were overpaid, claiming that the overall Chinese soccer players’ level and ability were not worthy of the salaries that they obtained. This group of people pressured the soccer association to limit the salaries of soccer players. As it turned out, the policies that resulted from this debacle went against market rules. The association not only failed to solve the problems, but also triggered a sequence of more complex issues.

Liu Jian’s transfer case is currently processing; we still do not know which one of these contracts is real. Meanwhile, Guangzhou Evergrande has already removed him from its squad list for next season. A panel composed of officials from the Chinese soccer association is still investigating this issue, as people are waiting for a reasonable judgment. If the panel fails to come up with a fair judgment, Liu Jian may not sign with either of these two clubs, and his career may become gloomy.

Although each country has a breadth of unique problems in its sports management system, all sports managers need to bear in mind that all sports policies should be in accordance with disciplines of the market, and perhaps more importantly, should adhere to the principles of the policies to protect players’ benefits.

The Magic Touch: International Expansion and the Bundesliga

In August, after Bayern Munich won the Audi Cup in China, Karl-Heinz Rummenigge, the chairman of the club, announced that the Bayern will set up a Chinese office to handle a wide range of businesses and continue to penetrate the high-potential Chinese market.

 Rummenigge announces new plans

 With the same purpose of increasing overseas expansion as Bayern Munich, the Stuttgart soccer club just declared that from January 7th train and prepare for the second half of the season in Cape Town, South Africa--ten thousand kilometers away from Germany. Many people may find it surprising that the club has chosen to set the training camp in such a distant location, and athletes will definitely be tired and uncomfortable because of long-distance flights, different time zones, climate and diet. However, this plan makes sense.



This move will not only let players enjoy sunshine of South Africa in January but also will allow the club to obtain an amount of money awarded by the German Football League (known as DFL, Deutsche Fußball Liga). In order to encourage the club to do more outreach in other countries, the DFL will pay Stuttgart €250 thousand for its winter trip. But in order to get this reward, the club will also have to take part in many local activities. According to the schedule offered by manager Fredi Bobic, besides training and matches, the club will travel to Robben Island to climb mountains. All of these activities in South Africa will be broadcast by Supersports TV station.

Robben Island, 6.9 km west of the coast of Cape Town 

People should get used to this type of overseas trip from German clubs, and in the future we will find an increasing number of trips happening around the globe. All of these actions are geared towards keeping up with the pace set by other leagues like the Premier League to expand overseas markets. During the 1990s, Barcelona, Manchester United and AC Milan started to train and play matches in Asia and America, but fans could hardly find Bundesliga clubs outside of Europe.

“Bundesliga is backward drops behind other leagues as for developing overseas market,” Christian Seifert, a member of the DFL board said. In order to change this situation, DFL has launched a program for clubs: DFL will provide financial aid and extra bonuses to clubs that set up overseas training camps, and some clubs can obtain up to €300 thousand for doing so.

 According to Dr. Jan Lehmann, the director of Strategic Marketing & Product Management of the DFL, there are two important rules for this new program. The first is that eighteen clubs are ranked by UEFA Coefficient (which is based on the results of clubs competing in the five previous seasons of the UEFA Champions League and UEFA Europa League).

This rank is then regarded as its corresponding overseas influence. Because of the different rank, each team can obtain a different bonus. Those clubs with a point total higher than 50 will gain €150 thousand; those clubs with a point total between 25 and 50 will get €100 thousand; the rest of the clubs with fewer that 25 points but more than one point will get €50 thousand.

The table of UEFA Coefficients of German clubs

The second rule for financial aid is about the place which clubs choose to do outreach. For this regulation, DFL lists eleven major markets: China, Russia, America (Canada), Poland, Indonesia, Japan, Turkey, India, Thailand, Brazil and Sub-Saharan Africa (including South Africa, Ghana, Nigeria and Kenya). If a club whose UEFA Coefficient is higher than 50 sets the training camp in Europe, it will win 150 thousand Euros; if it sets the camp outside Europe, it will gain another 75 thousand.

China is the biggest target for clubs

For example, because of two rules, if Bayern Munich set its training camp in China next summer, it will get more than 300 thousand Euros from DFL. Although this amount of money is not attractive to such a big-spending club, it will motivate many other middle and small clubs, and the trip of Stuggart exactly demonstrates this point. Besides this new program, in order to expand overseas markets, DFL has also tried to develop broadcasting contracts, which will bring the league to a higher level from a global context.

According to new contracts, the revenue from overseas broadcasting of Bundesliga will be increased to 150 million Euros in 2015. Benefiting from all these actions, fans from different countries will have more chances to get involved in Bundesliga. Moreover, because of these mechanisms, more and more small and medium clubs will have greater opportunities to develop themselves, which will gradually break the monopoly of Bayern Munich and Dortmund which dominate the ranking, so a more competitive league will be presented to fans.

The Magic Touch: The Success of Guangzhou Evergrande (Part II)

This is Part II of a two-part post on Chinese soccer club Guangzhou Evergrande.  To read Part I, click here.

Some people think that the success of big-spending football clubs is beneficial because it can bring immediate prosperity, while others believe that this pattern is not sustainable. However, people may cannot label this phenomenon good or bad since to a certain extent, the occurrence of these new operations in the sports industry is inevitable.
But in China, it is widely acknowledged that the success of Guangzhou Evergrande has brought much more benefits than harm to the stagnant Chinese soccer industry (and even to the nation as a whole). Most importantly, the success of Guangzhou Evergrande has rekindled Chinese belief in soccer. During the past ten years, Chinese soccer teams constantly went downhill and most fans became pessimistic of the future of Chinese soccer. Empty stands were common in matches of the Chinese Super League.

However, things have changed as mighty Guangzhou Evergrande reaches new milestones like winning the triple crown of three different cups in a single season. Before the final of AFC Champions League, all 40,000 tickets were sold out in three days. More surprisingly, many eager fans spent 3,000 yuan (nearly $500) buying tickets that were originally sold at 400 yuan (about $65). It was impossible to see these scenarios outside the stadium five years ago, and people believe this desire is the key to further development.

The sold-out Final

Furthermore, because of the enthusiasm and hope of soccer lovers, an increasing number of parents would like their children to play soccer and to become professional players. From a well-known Chinese reporter’s words, Ma Dexin, there are only 42 professional players in the U-15 Chinese national team now. But in the next several years, with the profound change in people’s attitudes, the talents pool and growing youth teams could solve the problem of insufficient numbers of young players.

 More importantly, in light of the success of Guangzhou Evergrande, an increasing amount of people and companies will be encouraged to invest in soccer industry because of its relative profitability. The effect of advertisement and the possibility of replicating Evergrande’s success could drive numerous firms and individuals into the space. Because of the professional-style management group at Evergrande, the club has managed to remain financially healthy despite the massive spending.  Its expected that the club will soon be very profitable.

We also need to strongly point out that because advertisement, the Evergrande group has greatly increased its turnover. Before it purchased the soccer club, its turnover was approximately 30.3 billion yuan (nearly $5 Billion) per year. In contrast, during the last year, the number has been increased to 92.3 billion yuan (over $15 Billion). In view of the bright and prosperous future of Chinese soccer industry, numerous companies may want to enter the market.

This is Part II of a two-part post on Chinese soccer club Guangzhou Evergrande.  To read Part I, click here.

The Magic Touch: The Success of Guangzhou Evergrande (Part I)

Guangzhou celebrating their Champions League Title

This is Part I of a two-part post on Chinese soccer club Guangzhou Evergrande.  To read Part II, click here.

On the night of November 9th , Guangzhou Evergrande of China won the AFC(Asian Football Confederation) Champions League by beating Seoul FC from Korea. This was the first time a Chinese soccer club won the continental tournament. My grandfather, a long-time soccer fan, described the moment as one of the greatest of his entire life.
Guangzhou Evergrande was originally founded in 1954. In 2010, after the Evergrande Real Estate Group purchased the club, this team won the championship of China's second division and was promoted to the Chinese Super League. A year later, the club claimed the league title in its first season in top flight (the same feat German club FC Kaiserslautern performed in 1998). Then during the next two years, the club furthered its success and the Guangzhou Evergrande era began.

Evergrande Real Estate Group deserves much of the credit for these achievements. Their transactions include signing  Dario Conca, MVP of the Brazilian Soccer League and Brazil national team player Elkeson, along with renowned manager Marcello Lippi. All told, Evergrande has spent more than three billion yuan (nearly $500 MM) during the past several years.

Magic with star player Dario Conca

The success of Guangzhou Evergrande is one example of a big-spending teams winning titles around the world. Ever since Russian magnate Roman Abramovich entered Stanford Bridge (home ground of English club Chelsea), operational patterns of professional soccer clubs have been changed. By pumping significant funds into the team and recruiting top-notch players and coaches, clubs can obtain excellent results almost immediately.

Russian Magnate and Chelsea owner Roman Abramovich 

Currently, Chelsea FC, Manchester City and Paris Saint-Germain lead this contingent of clubs built on wealth rather than proper management. The soccer world order was upset by new money and rule changes, leaving many traditional powers fragile. The most significant changes occurred as a result of the Bosman Ruling. The Bosman Ruling banned domestic league limits on the amount  foreign players a club could employ (as long as they were citizens of a European Union member nation). This opened up a rash of transfer spending and opened the door for big-pocket owners to flood the world's soccer scene.

This is Part I of a two-part post on Chinese soccer club Guangzhou Evergrande.  To read Part II, click here.

The Weekly Rant (12/2): The Mixed Incentives of the Posting System

The Posting System between Major League Baseball (MLB) and Nippon Professional Baseball (NPB) is a hot topic these days among the world's baseball fans.  The procedures set up in a 1998 document describe how players can be transferred from Japan (and Korea) to North America.  While the Posting System is not something American baseball fans usually worry about, coveted ace Masahiro Tanaka's possible posting has many talking about these issues.

The two best professional baseball leagues in the world originally agreed to the Posting System in 1998 after several incidents in preceding seasons (involving Hideo Nomo, Hideki Irabu, and Alfonso Soriano). Since then, NPB players with less than nine years of service time have been covered by the agreement, while those with over nine years are treated as free agents by MLB.

The process begins when players are "posted" by their NPB club.  The exclusive negotiating rights are then awarded to the MLB team with the highest bid in a "blind" auction.  If the player and the MLB team can come to an agreement, the NPB club receives the bid money in the form of a one-time "Posting Fee". 

Both sides were eager to make changes to the Posting System this offseason, and so far they have not been able to hammer out an agreement. No players, including Mr. Tanaka, can be posted until there's a deal in place. The only change under the current proposal is an alteration to the amount of money NPB clubs receive; they would get only the average of the two highest bids rather than the amount of the highest bid.

The discussion stateside has unsurprisingly focused on MLB's perspective in the negotiations.  For the clubs as a whole, this agreement would obviously be a small win. Posting fees simply would decrease by a small amount.  The main disagreement on the clubs sides is an internal debate about whether posting fees should count for competitive balance tax purposes.

While players would seem to have less skin in the game, the MLBPA actually has a great deal to consider.  The union certainly would like to see less money going to Japanese clubs, a group with whom they have virtually zero common interest.  They do have in an interest in seeing posted players get the largest salaries possible, for a variety of reasons (not the least of which is that those players are future members).  But current membership probably is not overly concerned with the matter, and they may wish to use their bargaining power for more direct benefits.

For NPB clubs, this new agreement may be a small concession after years of favorable terms.  They would stand to lose whatever MLB is gaining in lower posting fees.  But the system is still preferable for Japanese teams than any number of potential arrangements.

The most interesting angle may be that of the NPB players. Posted players could potentially receive slightly more money with reduced posting fees, but they don't stand to see huge increases. Regardless, the posting system is only a concern for a small percentage of  Japanese Professional Baseball Players Association (JPBPA) membership.  Only a few of their hundreds of current members could even dream of being posted.  Here's how Japanese super-agent Don Nomura described the players union:

"The Japanese players association is absolutely weak... I don't know if they have a plan, but obviously they're not winning in any labor talks. Free agency hasn't changed in many years and the players' minimum salary hasn't changed in about 15 years, so you can say the association hasn't really done much for the players."

If the JPBPA is not able to make headway on basic issues, then it is unlikely they can win on an agreement that affects about 1% of membership.  The union's executive director, Toru Matsubara basically admitted defeat on the issue, stating:

“There was not enough time on our side and we haven’t got any more bargaining power than this. It was an agonizing decision (accepting the revisions).”

Over the Posting System's 15 years, only 21 players have been posted, with just 13 actually agreeing to terms with MLB teams.  All of the parties would probably like to see these numbers increase.  The MLB wants the world's best talent, while NPB clubs want compensated for developing it. The MLBPA would like more high-priced players entering the League, and the JPBPA would like to see its players to get as much freedom and compensation as possible.

Instead, the only changes likely coming are superficial in nature.  MLB teams stand to make small gains in a fixed-pie negotiation with NPB, while the JPBPA loses again and the MLBPA remains a bystander. 

The Magic Touch: The Chinese Basketball Association vs. The NBA

Because of the success of the NBA, many leagues in different countries are driven to offer better and better products.  The result is a high-level of competition in leagues around the world.

The Chinese Basketball Association (CBA) is one of these improving leagues.  For example, as the CBA has developed over the past several seasons, many former NBA players have joined the league (i.e Stephon Marbury, Tracy McGrady, Steve Francis, etc.). This infusion of talent has made the CBA much more competitive and prominent than ever before.

However, the NBA and CBA developed in different countries with varying conditions, and there are many fundamental differences between them. Through the observations of both basketball leagues for many years, I have summarized four major differences between them.

1. Competition System

There are 30 clubs in the NBA, but in contrast, there are just 18 clubs in the CBA. Like its American counterpart, the CBA also has pre-season games, playoffs, finals and All-Star games.  Although it emulates the NBA to a certain extent, it is limited by fewer teams and an uneven geographical distribution. Therefore, the CBA only has 306 games during a season, as opposed to approximately 1300 NBA games.

The distribution of CBA teams in 2013

Besides the difference in the quantity of regular season games, the NBA has a much more developed system of pre-season games and Summer Leagues. Because of this, players have abundant opportunities to adapt to the new season and get familiar with new teammates while teams can promote their global images through overseas games. However, since Chinese basketball clubs are not as wealthy as those in America and pre-season games lack chances to make high profit, the CBA does not have a Summer League or enough high-quality pre-season games.

2.The structure of management

In the NBA, the Board of Governors and Commissioner (management), along with the Player's Association (employees) work to grow revenue and increase competitive balance. For instance, these parties set the salary cap to make sure teams have equal opportunities to sign great players and play close contests. They try to make the resources of each team more equitable to guarantee the competitive balance, going so far as sharing broadcasting and ticket revenue. All of these functions show that the management approaches of the NBA are operated with the same principles as a successful business, because these methods are all market-driven and serve to enhance the advertising value of the games.

However, the CBA, is managed by the Basketball Department of the General Administration of Sport in China, which is greatly limited by the government. Even though the department has implemented many market-oriented operations, it cannot be fundamentally be turned into a market-oriented organization because of its inherent centralization.

The Management Structure of CBA

 3. Business Model of Clubs

NBA teams’ revenue sources are diversified. Some of those resources are managed by the league as a whole, like the national and international broadcasting rights (TV and online), derivative products, or sponsorships and media companies (NBA TV, NBA Tape/DVD). Each club controls most revenues from local TV contracts, gate receipts, and in-game retail sales.

In contrast, ticket income accounts for a much more significant percentage of total income for CBA clubs because of the immature nature of broadcasting, advertisement, and derivative products in China's sports industry. Another source of income for CBA teams is to sell the naming rights to other companies, which is common in Asian sports leagues.

Shanghai Maxxis Partnership

 

 

For example, the Shanghai team has sold its naming rights to Maxxis, a tire brand, so its name has become Shanghai Maxxis basketball team. In the 2004-05 season of CBA, the total revenue of selling naming rights reached 27,480,000 yuan, which accounted for 29.13% of the total income. Now, these numbers are skyrocketing. Last season, the Double Star Group spent 20,000,000 yuan to buy the naming rights of the Qingdao basketball team.

4.The way talents entered the league

Since 1947, basketball fans have always been accustomed to watching the annual NBA draft in June, and many players picked from it would become stars the very next season. As we all know, most talents in NBA draft are from NCAA, an effective talent pool for NBA. Because of the high-level matches of NCAA, many outstanding talents are trained to be qualified candidates to NBA teams.

Students from sports schools

However, in China, fans do not have chance to feel the excitement of the draft. The way talents enter the CBA is completely different from that of NBA. In every province in China, each has a sports bureau which is in charge of looking for and organizing sports talents in its sports school. When the talent qualifies for the professional league, he or she will be directly transferred to the CBA team or other professional sports clubs in this province. In Liaoning province, one of the best sports talent breeding-grounds in China, the sports school supplies the Liaoning basketball team in the CBA with many talents every year.

Certainly, most basketball leagues have a lot to learn from the NBA, the best basketball league around the globe, but each of the leagues still need to preserve their unique elements, which result in the heterogeneous prosperity of world basketball.

The Magic Touch: Premier League Ticket Pricing

This year, more and more professional soccer clubs been accused by their supporters of having ticket prices that are "out of touch". For example, the Arsenal soccer club in Premier League has raised the cost of standard tickets 6.5%. An increasing number of campaigns by fans have been conducted since many of them cannot afford the tickets any more. In order to maintain a high profit while making sure fans can afford the tickets (90% occupancy rate is a standard for most clubs), soccer clubs need to develop the right ticketing strategy.  

When setting the ticket price, managers need to considerate many aspects. Some are often unique to the circumstances of a particular football team like the quality of the stadium, location and accessibility, and even demand for tickets determined by the team’s place in the rankings. With the purpose of solving all of these practical problems most soccer clubs use a “market-oriented pricing”scheme among a wide range of pricing strategies.

Market-oriented pricing involves setting a price based upon analysis and research compiled from the target market. Marketers will set prices depending on the results from research into a wide variety of factors. For instance if the competitors are pricing their products at a lower price, then it's up to them to either price their goods at an above price or below, depending on demand and the value that the club can deliver.

 

A major benefit of this strategy is that a club can match its prices to the needs of the fans. Because the conditions of each fan differ from those of each another, such as income, preferences on the match day, and frequency going to the stadium, it is important to understand the needs of the average fan through surveys and research.

 

For example, different earnings of fans result in differing abilities to afford the tickets. In London, where workers get a higher salary than those from other areas in Britain, ticket prices are higher than those of other zones. In fact, among the six clubs with the most expensive matchday tickets, the clubs from London account for five of them.

Among the six clubs with the most expensive matchday ticket, the clubs from London account for five of them.

 

Moreover, taking into account the various needs of fans, clubs can launch different ticket packages and policies to satisfy them and meet their needs as much as possible. If a large percentage of fans would like to come as families, the club can offer more family ticket packages, or designate family areas in the stands. If most fans purchase food and beverages during the match, the club can add discounts or coupons for concessions during the tickets selling.

By meeting the needs of as many fans as possible, it is easier for the club to achieve its target: to increase and maintain the average occupancy rates of matches above 90% and create a winning atmosphere for the team.
 

Another benefit of doing surveys and research during a season is that clubs can make adjustments to optimize revenue. To guarantee profitability, it is much more convenient for clubs to change the ticket pricing according to various conditions, such as the strength of the rival, the changing rank of the club and projected occupancy rates.

For instance, if the upcoming rival is one of the giants of the Premier League, such as Manchester United or Liverpool, and through surveys, managers recognize the great enthusiasm of fans, the club can flexibly change ticket prices from game to game.

Aston Villa sets the ticket prices approximately five pounds higher for the match with Tottenham than with Cardiff because of different strength of the rivals and desirability to fans.

 

This approach also helps to guarantee long term profitability. Through the analysis of tickets prices and corresponding attendance from the past matches, managers can create a business model that takes into account the price that fans are willing to pay, and find the optimal price, which will  maximize revenue while maintaining the 90% or higher occupancy rate.

If the capacity of certain stadium is 24,500 and 22,050 is 90% of the maximum capacity, when the area of the rectangle in which the attendance is the length and the match-day ticket price is the width is the maximum, the revenue is maximized.

A limitation of this strategy is the potential problems with the design of questionnaires and incomprehensive sampling. The club may obtain inaccurate or biased raw data from the survey, which would result in incorrect conclusion. Additionally, the factors considered in the business model may not always be well-rounded. Focusing on the statistics from the past matches and from fans, managers may ignore the macroeconomic conditions and changes in customers’ situations that may effect their ability to afford tickets.

 

To counteract this, professional clubs cooperate with experienced and reputed companies, such as Gallup, to design better questionnaires and survey fans in various ways to obtain comprehensive raw data. When creating the business model, clubs always employ economists or statisticians to consider more factors which are otherwise easily ignored, hence putting more parameters in the model to increase its accuracy.

The clubs often use other subtle pricing techniques to increase sales, including setting prices that have a positive psychological impact on customers. For example, selling tickets at 69.95 or 69.99 pounds rather than 70.00 pounds. A minor distinction in pricing can make a big difference is sales. Another option is to price tickets slightly higher than those of other football clubs, but through offers, advertisements, and different discounts, also make lower prices available. The lower promotional prices are designed to bring customers to buy a ticket (or more) for a particular match, while the standard (slightly higher) tickets are also available to those buyers who are not price constrained and will not spend the extra effort to seek lower prices.